Q2 2022 Upwork Inc Earnings Call

July 27, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

Good day and thank you for standing by welcome to the upward Q2 2022 earnings Conference call.

At this time.

All participants are in a listen only mode.

After the Speakers' presentation, there'll be a question and answer session.

Ask a question during that session you will need to press star one on your phone. Please be advised that today's conference is being recorded and I would now like to handle conference over to your speaker today, Evan Barbosa VP of Investor Relations. Please go ahead Sir.

Thank you you're welcome to upwards to the discussion of the second quarter of 2022 financial results.

The discussion today are Hayden Brown upwards, President and Chief Executive Officer, and Jeff Mccall upward Chief Financial Officer. Following management's prepared remarks, we will be happy to take your questions, but first I'll review the safe Harbor statement.

During this call we may make statements related to our business that are forward looking statements under federal Securities laws.

These statements are not guarantees of future performance.

Rather are subject to a variety of risks uncertainties and assumptions.

Our actual results could differ materially from expected.

Spectation reflected in any forward looking statements.

In addition, any statements regarding the current and future impacts of Russia's invasion of Ukraine, and our decision to suspend business operations in Russia, and Belarus, and the COVID-19 pandemic on our business.

Current and future impacts of actions, we have taken in response to Russia's invasion of Ukraine, and the COVID-19 pandemic are forward looking statements.

And related to matters that are beyond our control and changing rapidly for.

For a discussion of the material risks and other important factors that could affect our actual results. Please refer to the SEC filings available on the SEC's website.

Our Investor Relations website as well as the risks and other important factors discussed in today's shareholder letter.

Additional information will be will also be set forth in our quarterly report on Form 10-Q for the quarter ended June 32.

<unk> 2022 when filed.

Addition, reference will be made to non-GAAP financial measures.

Formation regarding a reconciliation of non-GAAP to GAAP measures can be found in the shareholder letter that was issued this afternoon on our Investor Relations website at investors got upward dot com as always.

Unless otherwise noted reported figures are rounded and comparisons of the second quarter of 2022 to the second quarter of 2021, all measures are GAAP unless cited as non-GAAP now I'll turn the call over to Hayden.

Thanks, Kevin and thank you all for joining us today for our second quarter 2022 earnings call.

Building on the momentum and strong results of the first quarter Upper forged ahead on innovating evangelizing and scaling the world of work marketplace growing revenue, 26% year over year to $156 9 million in the second quarter.

We continue to focus on product innovation and outstanding results in the form of higher customer satisfaction scores faster time to hire and strong client reengagement rates from our latest innovative feature in the projects catalogue area called consultation.

Patients with a one click option for clients to book time with talent for both general getting started advice and guidance on important projects decisions. Its early success is leading us to expand the pilot from four categories to all 90 plus categories in the third quarter.

Product enhancements in the quarter also included the introduction of project tiers, which enabled talent to structure their services in a way that help clients more easily understand and match their needs to preset project scopes.

Finally, we also advanced the virtual talent bench or BTB experience to enhance the ways clients can find organize and mobilize the expertise they need.

Our continued success with larger customers and our focus on building brand awareness across the market was evident in our sales and marketing performance in the second quarter.

Enterprise revenue increased 45% year over year to $12 3 million and the number of clients that spent $1 million or more in the trailing 12 months increased significantly year over year. Our sales team achieved their deals per rep productivity targets and we have maintained our hiring pace to stay.

On track to double the land team by the end of this year, we continue to focus on building upward into the household name in our space investing with discipline and a focus on measure ability and brand awareness.

Many large recognizable companies such as our Syrian fanatics, Newsweek Pioneer Pearson and service now signed on as New Enterprise plan customers in the second quarter, turning to upward as a high trust high quality destination for remote work and specialized talent at scale.

In an increasingly low trust fragmented volatile world.

We help clients like these respond to and prepare for economic headwinds ensuring that organizations growth digital transformation and talent innovation initiatives can progress undeterred.

The success of our new client marketplace plan announced late in the first quarter was also on display with its implementation in the second quarter.

This plan gives all self service clients more features for a flat service fee, while simplifying their experience, reducing friction and providing them more value.

Many clients have already derived additional benefits from the new plan via access to premium talent advanced talent searches utilization of activity codes and more robust reporting capabilities.

A vibrant inclusive online community is a critical component of what makes up work distinctive we're committed to ensuring our community has the full range of resources to enable talent and clients to innovate their careers and their work to unlock their full potential.

In service of this we launched upward Academy alongside improvements to our community to support the hundreds of thousands of actively earning talent on the platform.

We've seen high levels of engagement on both upward Academy and community pages with over 200 course completions on Academy in the first month and community page views almost 50% higher than the previous month.

Upward values are a key attraction point for our customers on both sides of our work in marketplace.

This is exemplified by our role as a trusted advisor in helping clients achieve their objectives with new talent from other regions. Following our decision to suspend operations in Russia, and Belarus, where we announced the contract with talent where clients in those countries would be required to wind down by May one.

2022.

Since then we've seen many global customers working with Russia, and Belarus based talent, who have relocated outside of the region as well as with alternative talent. They have found through our work marketplace.

With respect to business activity in Ukraine, we continued to see strong performance during the second quarter.

GSV was above 90% of pre invasion levels once again, demonstrating the resilience of professionals from Ukraine as well as the key strength of our platform.

Well, we estimate that the loss of revenue directly attributable to the war was approximately $4 million in the second quarter and we expect the impact to revenue in each subsequent quarter of 2022 will be slightly less than the impact seen in the second quarter.

As we look to the future up work alongside our customers partners and investors face as macroeconomic conditions that are difficult to predict.

While there are risks, but a slowing economy put downward pressure on some parts of our business. We also see this as a catalytic moment for leaders to reevaluate the old ways of working and operating as well as to widen their consideration of more innovative solutions and for upward to capture a greater share of the market.

Our business model remains durable and we are confident that our value proposition of delivering highly skilled diverse talent from over 180 countries more effectively affordably and quickly than alternatives.

As well as them, enabling clients to have greater flexibility with our cost structure will continue to resonate even in a recessionary environment.

The opportunity ahead, our pork is massive.

Card with a near term economic conditions in fact business continuity talent transformation, a flexible cost base and cost savings will likely become even more critical in the quarters ahead, we remain focused on delivering enduring growth fueled by investments and initiatives with strong economics.

In every aspect of our business from core product innovation to building, our sales muscle to brand and performance marketing upper.

<unk> is the leading digital platform that clients trust to deliver the talent they need with the exact skills to get work done and as the home that talent trust to champion them and innovating their careers, while bringing them exceptional work opportunities.

There is vast potential unlock on both sides of the world's work marketplace and we've only just begun.

For joining us on this journey, we will now open the call to your questions.

Thank you.

As a reminder to ask a question you will need to press star one one on your phone.

Please standby as we compile the Q&A roster.

Our first question comes from Matthew Farrell Piper.

Piper Sandler your line is open.

Thanks, guys. Congratulations on the really strong execution in managing through all the moving pieces.

I wanted to zero in on the $10 million to $15 million impact from the softening of the global environment should we think about that including some further deterioration in the macro from here and then as I think about that from an upward perspective, how does utilizing the freelance workforce benefits.

From a cost perspective, as you look to balance.

Costs here as we move forward and are unpredictable.

Unpredictable environment.

Thanks, Matt I'll I'll take the first part of that.

With respect to the $10 million to $15 million impact.

Our guidance reflects.

Some of the softening that we saw.

In Q2 with respect to client acquisition client retention, particularly as we noted in Europe and in F&B.

And obviously this is yes things are difficult to predict in terms of how they will play out but it's our best guess based upon.

The trends that we're seeing at this point, what that impact could be clearly things could be better things could be worse, but that's how we really box to what we thought the impact could be.

With respect to the second question, which was.

Cost savings on the platform Hayden did you want to address that.

Sure I'd say, Matt we're seeing in the broader market.

Customers are really kind of resonating with us or talking to them the value proposition, we have around saving more through programs using talent on FERC on average they save 50% or more using up our talent versus alternatives.

Things that are really resonating are around flexibility and speed and so while macro is obviously front and center for so many businesses right now.

We're not losing sight of the fact that they still need to get work done and they are really trying.

To figure out how they can do that cost effectively and that's where our value proposition is resonating. Hence we are we have realigned a lot of our marketing and sales talk track to really shine a light on that part of our value proposition and we're getting good receptivity around that so we want to make sure that we are positioning the business to take full advantage of that opportunity, which I think is going to be significant.

Over the coming quarters.

Thanks, and then as well I wanted to zero in on.

Really strong momentum again here in Q2 across all the metrics.

Maybe just help us understand how conversations have changed with some potential clients.

As we've gone from.

In a COVID-19 world to an economic slowdown environment and.

Could we.

The accelerated trends.

Marketplace.

Given the benefit that the marketplace offers here for enterprise customers over the next couple of quarters.

What we've seen so far Matt is strong execution by the team continues and I think against the backdrop of conversations, which certainly theres been an uptick a focus in Q1 and Q2 from customers around <unk>.

Things like.

Cost savings maybe they themselves are doing layoffs are shrinking their budget, but theyre looking to us as an alternative for getting talent really cost effectively and I think that's led to some of the success.

We saw a 24% year over year growth in new deals we saw our overall enterprise revenue grow 45% year over year in Q2.

There's a little bit of that is probably in the conversation, but I wouldn't say, it's materially changed anything for us I think the success is largely been driven by great execution by the teams and continued hiring in everything that we had in the plan coming into fruition. So I think there's something in the backdrop, but it's not.

I'd say, it's a major change right now companies are still really focused on the three things that we typically help them with the most critical skill gaps greater agility digital transformation efforts and now just the fact that we offer some of these evergreen things by cost savings.

Is it just a little bit more top of mind.

Awesome Congrats again.

<unk>.

Thank you.

One moment for our next question.

And our next question comes from Maria Rips Canaccord Genuity. Your line is open.

Great. Thanks, so much for taking my questions and congrats on strong results. So it sounds like this last couple of quarters, you had a little bit high contribution to growth from spent per client horses number of clients can you. Maybe just talk about whether this has been consistent with your sort of internal expectations and how should we think about this dynamic going forward, especially given sort of continued.

Focus on sales force.

Expansion and brand investments.

Okay.

Sure. Thanks Maria.

So theres a number of factors are one we're really pleased with the quality of the.

The clients that are on the platform and the growth that we're seeing from them.

Their overall spend across the 800000 approximate clients we have on the platform is up 16% year over year those are spending over 100000 or up 38%.

Million dollar spenders are growing significantly as well. So we're really pleased to see that we've mentioned historically that that's that's been driven significantly by expansion in hours per project on the platform, which we think is a great signal that clients are getting more and more value from the platform.

As we mentioned we have seen some.

Some softening in the client acquisition.

<unk> levels once.

Once again, primarily related to SMB and in Europe .

So that's putting a little bit of pressure in terms of the overall growth of active clients.

But it's great to see that the clients that are on the platform are continuing to grow their spend and it highlights. Additionally.

The importance of us continuing to invest in our brand marketing so that more and more clients can be aware of the value proposition that we have particularly as they are facing the dynamics on the on the horizon.

Okay.

Got it thank Jeff and maybe it's sort of related to this.

Does the current macro backdrop change your priorities or approach to sales force expansion and brand investments.

Brian maybe I can jump in on that one I think on the macro side a couple of thoughts first of all we definitely don't have perfect visibility into how things are going to play out and while it's an imperfect analogue we do look to the 2020 environment, where we saw initial softening in our overall marketplace.

That's been contracted for some businesses and then things improved as we leaned into the specific opportunity that we saw for upper come out from our work on some of the other secular trends that were happening and economic aspects.

We also see a couple of dynamics playing out as we look ahead. So one is spend will likely contract for next couple of quarters and as Jeff mentioned, we've ring, that's going to come from specific customers, probably F&B Europe , etcetera, but we've ring fenced that as a $10 million to $15 million downside, which is baked into our annual guidance.

Additionally, we really haven't lost sight of the fact that secular trends around remote work and digital transformation continued to be mega trends for our business right now even as the economic force is going to be what it is for a lot of different businesses and so for these reasons and due to the additional upper specific value propositions around cost savings flexibility speed.

We know this is the time when we can drive category growth and share shift to FERC and not why we are continuing to bet on brands to your question against this backdrop to really drive awareness consideration and ultimately purchasing by customers, who frankly today may not even be aware of upper completion at all so with that in mind, we want to come.

Out of this catalyzing the business to be even stronger than ever before.

It is going to be critical going forward as more customers become aware of and adopt distribution through the coming quarters.

Got it that's very helpful. Thank you very much for the color.

Absolutely.

Thank you.

And again, one moment for the next question.

Our next question is coming from Andrew Boone of JMP Securities. Your line is open.

Good afternoon, and thanks, so much for the questions.

Given the 90 basis point step up and take branch quarter over quarter can you help us understand the momentum in France, and whether that can continue from here and then just given the greater success in terms of monetization how do you feel about taking price as a growth lever from here.

Thanks, Andrew.

Yeah.

It was great to Cvs.

The nice increase in take rates, which is primarily driven by the by the pricing and packaging structure changes that we made in Q2.

When we look at the longer term horizon of where take rates would go we do expect that they are.

We will likely be able to deliver additional value.

And to drive increases in take rates for a variety of factors.

One.

As enterprise, which has a higher take rate than non enterprise.

<unk> to grow faster than the rest of the business that will have an upward momentum.

Project catalog and take rate also higher take rates and so as they grow faster same store dynamic now they're smaller.

Some of the business, so there'll be a little bit longer. There is also additional opportunities to drive take rate through our paid promotional products and potentially value added services.

So we do think that over the medium to longer term arc. They will continue to rise as we flagged at the beginning of the year we expected.

Nice improvements throughout 2022, we do have the additional dynamic that was really the driver of our take rates decreasing in 2021 as clients.

Continue to find more and more value on the platform.

More of their spend is at the lower end of the pricing tiers and so that dynamic.

We'll continue.

As we continue to see that that spend per active client continue to grow.

Okay.

That makes sense. Thanks, and then as you guys laid out kind of a path towards margin expansion over over a multiyear period can you just help us understand the key points of leverage across the various expense line items and how do you guys envision that thanks, so much.

Yes, Thanks, Andrew.

So we actually think there's good leverage that we can have across the board.

So whether that is from cost of revenue.

Including payments, where the majority of our cost of revenue actually comes from our payments costs.

And the enterprise portion of the business, which once again is growing faster doesn't have those payments costs. So simply that mix shift of that growing faster. We will provide some leverage within cost revenue also will be able to drive efficiencies within other areas of cost revenue, including hosting or customer support.

But we also think that over that medium to long term market there there'll be benefits along all of the Opex lines. So.

So G&A.

G&A R&D.

And ultimately sales and marketing, although we're obviously investing aggressively in those areas right now as we look out over the next several years. We continue to believe that there's good opportunities to drive that we've mentioned that we're.

We're providing the target for 2023 of achieving EBITDA profitability and that will continue to expand that EBITDA margin by several hundred or by a few hundred basis points.

Each year thereafter.

Great. Thank you.

Thank you.

And one moment please for the next question.

Our next question comes from Mr. Bernie Mcternan of Needham <unk> Company. Your line is open.

Great. Thank you for taking my questions just to follow up on the on the macro and so the.

Expected year over year growth rate in active clients to decline in the 10% to $15 million impact.

In the release it it seems like that's really isolated weakness in Europe , and does that contemplate any weakness in the U S as well.

Yes.

I think the phrasing was.

Some softening trends, particularly in.

In Europe and in SMB, we.

In general as we look at it.

We would imagine that some of the trends that we're seeing more pointedly in Europe would play out in the U S and when we come up with the estimates for our guidance. We've taken all that into consideration once again flagging that it's very hard to predict exactly when or how much that will play out.

But we have made some assumptions on that.

Understood and then most of the times, we're talking about the macro we're thinking about from the client perspective, but just interested in terms of what's happened in the past in terms of from a talent perspective.

Is this also a catalyst for higher quality talent to join to join the platform as well.

I think it.

It definitely is not going to be a negative for us we have such a strong talent base as it is and we've seen continued growth in that through the last years.

Years, and quarters, and certainly theres been a mindset shift I think we're.

In prior recessions going back in 2008, perhaps people might have seen freelancing as a risky place to be during an economic downturn in fact today, what we've seen in the last year that we've been serving on our platform transfer is actually are feeling more insulated from economic downturn being freelancers, because they feel like they're not exposed to a single employer who.

Lead them off and so to your point I think today's professionals are looking at freelancing as a highly desirable place to be they want to have more options in terms of multiple eggs in their basket, where they're not.

Exposed to that so we are certainly positioning ourselves to welcome to Thomson on the platform in the coming quarters as we always do.

And place them into great opportunities.

Understood and then just lastly for me if we could just dive into upward Academy.

Just some of the most popular types of education, the talent seeking out and ultimately this away for to really match the right clients with the right talent as.

Thomas you can screen and be able to show clients said, Hey, this person pass a certain class so they should be.

Are equipped to do this job yes.

Yes, Bernie this is.

Just the beginning I think of what we can do here. So it would be early courses that were offering and where people are getting a lot of value is a lot about kind of freelancing online 101, and how do I get started building our profiling our reputation on upward how do I win my first job. So that's a lot of the kind of initial coursework that we've launched and where talent is engaging the most.

There is also some course work on the client side around how to operate in the way of working that we offer.

This is again the beginning of I think a lot of what we can unpack for talent and clients around.

As of working online around both hard and soft skills required to be successful on the platform around remote ways of working and our community has tons of ideas and frankly as always doing their own work kind of informally sharing best practices that relate to all of the things that they are doing everyday to be successful working in our ecosystem. So we will be <unk>.

Moving to evolve the course catalog based on the wisdom of our community and then also we have partners, who potentially we can bring in to continue to up the game there as well and ultimately the goal here is as we raise the bar with our community on the talent quality client quality and kind of the work experience for everybody in our ecosystem that's a win for.

Everybody who is participating.

Great understood. Thank you so much for taking the questions.

Thank you.

Okay.

One moment please for the next question.

Our next question will come from Eric Sheridan of Goldman Sachs. Your line is open.

Thanks, maybe just one question from me is you've seen the broader macro environment become a little bit more volatile or I know, it's early days and sort of the big market opportunity over the next couple of years, but are you seeing anything different in terms of competitive intensity across the industry or elements of dynamic in terms of engaging with existing clients or prospective.

<unk> clients on the competition side. Thanks, so much.

Sure Eric we haven't seen anything materially different in terms of competition I think in conditions like these quite often it's harder for the smaller.

Kind of ankle biters in our space to stay competitive just because it gets to be harder landscape for them, but where our real focus is just continuing to offer our outstanding value proposition to clients and talent and forge ahead with our you know our innovations, which I think are really meeting the needs of the market and seeing had there so nothing really with shelter.

At this time.

Okay.

Thank you.

One moment for our next question.

Our next question comes from Nathaniel Schindler of Bank of America. Your line is open.

Yes, Hi, guys just wanted to focus in on.

How the brand campaign is going and how you are evaluating at this point now some.

Call it eight months into it and whether or not it's been successful in expanding the business.

Thanks, Matt the focus of this has always been durable growth with strong economics, which is our top priority in every investment area, we make including brand.

And I would say to bolster the discipline and the measure ability that we haven't even enhance the ROI.

The brand area, we did launch two partnerships in Q2 with Ipsos and Universal Mccann, which we're excited about is kind of key milestones here secondly, we always knew and to your point about the eight months, we committed and communicated that this would be a multi quarter journey and so additional milestones that we were excited.

In this quarter as we've been on this journey, where the mother's day campaign, which really provided us important learnings about how the upper brand can resonate with customers in key cultural moments and across critical channels like social and so we've been wrapping those learnings into our brand and marketing programs going forward.

Third thing I'd say about that as we are really finding already that the value proposition that we have does really resonate given the broader secular trends around from our work and digital transformation as well as upward specific benefits around cost savings and workforce flexibility, which are still top of mind for executives in these very moment.

So this is all informing our brand and marketing programs right now as we're going into the back half of the year. At this critical time, we are really aware that we can drive share shift and kind of pull out of this period, even stronger so as we look to the future because of our disciplined approach we feel good about our ability to continue to achieve both our brand goals.

And achieve EBITDA profitability in 2023, and further expand our margin thereafter.

Great. Thanks, and then just a separate question to totally hammering on the all this macro talk but I figured that's what everybody is going to talk about with everybody for the next couple of quarters.

Can you just speculate or anything you have on the history of how does the.

<unk> contracting business your style of contracting business get affected and recessions Hallow enterprises respond.

Usually in this side of the business and if there any sort of learnings on kind of timing of where they.

Contract and expand coming into cycles.

It'd be great if you could help us.

Sure I think there's a couple of things to say about that.

We've looked at a few analogs for our specific business, which.

I think is unique and different from even traditional staffing and others. So we've looked at our business. We've looked at what happened in 2008, and we grew really healthily through that period.

Of course that was 14 years ago and the business has changed a lot. Since then but certainly a lot bigger and has more aspect to it.

Looked at 2020, and what happened with the pandemic economy at that time and what we saw there was an initial slowdown in kind of the March April period as businesses were overall just contracting their own spend in many businesses were struggling are going under.

And then of course, we grew really nicely out of that and.

And I think one of the takeaways that I have from looking at those two analogs is for us.

Economy, and the health of the economy is certainly a factor that impacts our results and that's why we have put in the $10 million to $15 million.

Impact in the in the annual guidance for this year, but I think the other big impact and perhaps even bigger impact for US is things like these major secular trends around remote work around digital transformation around access to critical talent and skills, which are evergreen topics for executives that have become huge.

Impactful for almost every business and certainly huge for our business and core to our value proposition at this time, so I think those things together.

Focused on the macro for sure, but we're also as much or more focused on these critical things that are secular trends driving our business in so many businesses and are in the crosshairs of the value proposition that we're selling into right now.

Great. Thanks, David.

Sure.

Thank you.

One moment for the next question.

And next we have Rohit <unk>.

Okay.

<unk> partners your.

Your line is open.

Hey, thanks.

Nice quarter guys.

One question on the pricing clients are wondering if oh.

You have any feedback in terms of the pricing plan affect any client additions gross additions.

Just broadly speaking however.

Gross additions trended.

As you kind of locked through all the all the tougher computers.

Active clients as such.

Thanks, Eric.

Yeah, as we as we looked at the impact of the pricing change.

We paid attention to a number of different things one.

What was the level of adoption with features that were previously behind the subscription paywall how is that.

How are those go in and we've been really pleased to see to see that increase materially and that was one of the fundamental premises of the of the change was to make sure those valuable tools were available to many broader folks second of all was to monitor.

How how is the overall package impacting retention.

And clearly the prices going up and in.

In some key areas.

And we haven't seen anything noticeable we did hold outs as compared to <unk>.

From a pension perspective, so we're very pleased to see that.

And then from a financial impact on it.

We achieved our highest gross margin as a public company and our marketplace take rate was the highest.

Okay.

The company.

Our marketplace take rate was the highest.

Marketplace acreage since being a public company as well so we're really pleased with how our.

Value that we're delivering to customers and the reception of the changes.

Okay. Thanks, Thanks, Jeff.

Yes.

Question on project catalogs, it's been awhile since you disclosed metrics contribution from catalog.

In terms of the.

Client additions so GSV.

Wondering if you have any more details to share.

Or anything that you can look from the outside in terms of how successful.

You'll be in.

The Petro Lotus project catalog.

Is that can jump in on that one rohit I think the catalog.

<unk> is the way we're seeing it now is really it's wrapped into the overall work marketplace because the point of that product was never about just catalog by itself. It was about bringing customers into the broader upper part marketplace and where we are now is incredibly pleased with the progress we've made not just with catalog, but with the innovations on top of that.

Such as a consultation, which we launched in the last quarter and now are going to be rolling out from four categories to all of our categories are presently because we're really seeing that catalog and consultations are excellent inroads for customers to get started either with something small in bite sized.

Or becoming with for example, consultations are great way to get into a conversation with the talent that more often than not leads to follow on work and so with consultations. For example, we're seeing clients are averaging a much faster time to higher than we had in the talent marketplace with 50% lower with just one five days to get started.

And there also.

Turning to do follow on work, which often is in the talent marketplace.

Adam at a much higher rate, 50% higher than we've seen with talent marketplace shopped historically and so this is a nice kind of like in between offering that is really graduating clients really nicely from some version of catalog kind of into the broader marketplace and so this is really validating yet again, our whole thesis around catalog talent marketplace.

Consultations as being part of this broader work marketplace ecosystem that is just adept at getting customers in the door and getting started with Tom any variety of our products.

Okay, great. Thanks, Kevin Thanks, Jeff Thanks.

Thank you.

One moment for the next question.

Our next question comes from Logan rank of RBC capital markets. Your line is open.

Hey, Thanks for taking the question leg at Alterra, Brad Erickson.

Question on enterprise. So you guys had a strong client growth this quarter.

I'm just curious what you think is the driver of that why or why are you seeing increased adoption of people signing up core enterprise now and how much would you attribute that to the larger sales force and I have a follow up.

Sure. Thanks, a lot good I'll start with that.

So part of it is.

It's simply the fact that we are executing against our plan.

Where we identified the opportunity to invest more aggressively in building out our sales motion here.

We started adding reps in Q4 of 2021, those reps are starting to ramp.

And really have an impact really starting in Q2 of this quarter. So we delivered the 36 new accounts.

I think 24% year over year.

And so we're really pleased to see that and then as Hany mentioned earlier.

Honestly, our value proposition resonates very strongly for accounts of all sizes.

Haven't haven't yet started to see those accounts shift.

Exactly what they are interested into cost savings.

Dynamics as a result of any recessionary dynamics.

But we are actively engaged with them on those topics.

So we're really pleased by what we're seeing both on the land side as well as the expand side.

And continue to be pleased with the opportunity ahead of us.

Great. Thanks, and then just any sort of divergence you guys might have noticed in the behavior from companies that might be cutting costs or laying off full time employees.

Are you noticing any difference in behavior from those clients relative to your overall client base.

We're really not seeing this yet I would say.

The average customer is looking just like it was over the past couple of quarters and the success stories are very similar.

Have customers like Emirates NBD, that's one of the largest banks in the middle East and North Africa, and they came to us looking for new flexible talent, they could drive innovation and their marketing team.

No.

This is typical for us we're not really seeing an influx of customers who are.

Coming to us just because they're doing a big layoff or even our existing customers, who maybe are trimming head count coming back and saying, Okay. Now when you take an overhaul of the program. So as Jeff mentioned as we look ahead.

Maybe as the economy worsens or other things there may be more of those types of things, but certainly as we look to Q2 it was really more of.

Kind of I hate to call it seem old same old, but these value propositions that we've always had really driving customer activity in really great ways.

Great. Thanks for the color I appreciate it sure.

Thank you.

One moment for the next question.

Our next question comes from Brent Thill of Jefferies. Your line is open.

Alright. Thank you this is Jonathan.

I wanted to add a couple of macro questions.

Possible. So you talked about the climate business in Europe , and Smbs and want to see if you could maybe add a little more color in terms of.

Behavior, there I don't know whether there is any.

Tendency for smaller projects.

Use of mortality of catalog as opposed to more hours.

Whereby by geography by them by industries of customer size and then.

And then.

Just talk a little bit different than the previous questions about enterprise, but any signs of anything on the enterprise segment in terms of.

Activity.

Platform.

Sure. Thanks, John I'll start.

In terms of activity that we're seeing in.

From a geographic perspective.

I think that Theres any notable.

Trends or more details that we can provide we just saw a little bit greater softening in the Europe market overall.

But nothing nothing in particular to call out about specific customer segment.

Behaviors.

And then with respect to enterprises. Your question, what sort of impacts we're seeing in the enterprise or can you clarify the question.

Yes, I mean in terms of the.

Overall level of activity or cloud.

Clinic acquisition and so on I mean.

Is there any softness at all among the larger customers.

So what we're seeing in enterprise is.

Starting at the very top we're having good success hiring our land reps against our plan there.

We're continuing to execute well against their productivity targets.

We're beating that achieving that the new reps that we're hiring are.

Onboarding well, it's early we're just basically I guess Dale seven to eight months out of the first kind of reps that we started hiring in Q4 of last year.

Conversations with those accounts are going very well nothing no material.

Impact is noticeable from a sales cycle perspective.

And engagement with our with our existing accounts also continues to go well and you can see that in the overall revenue per account or revenue growth from the enterprise segment, So nothing to call out there.

Great. Thank you.

Sure Sean.

Thank you.

Okay.

One moment.

Okay.

Our last question will come from Marvin Fong of <unk>. Your line is open.

Good evening, Thanks for taking my questions and congratulations on the quarter.

Maybe to start with since so many questions about the current environment as a bigger picture question perhaps.

Just curious on maybe we just think about some of your other key performance indicators like like time to hire or fill rates.

In light of all the <unk>.

<unk> been making to the platform over the past years and the new.

Membership.

Structure.

Okay.

Either time to higher fill rates changed meaningfully since look let's say before the pandemic to right now and how are those trending and then I have a follow up.

Sure I'd say, we feel good about the state of time to higher fill rate.

Certainly.

It was pretty remarkable I think to us that as we went through Q1 for example, and we saw a pretty significant shocks to the system in the WMC Web mobile software development category.

As the Ukraine.

And our decision to suspend operations with <unk>.

Inside of Russia, and Belarus played out that you know as you reported in the Q1 call. There was really no impact to fill rate in that category for example, and so I think we've navigated both.

Some external shocks potential potentially very well with regards to a metric like that which is a critical and our platform and with innovations like the launch of consultations we're seeing.

The potential for acceleration in places like time to hire with a product like that and with catalog, which connect the talent and clients get on the platform EBIT faster. So I think all of these metrics are really healthy and even as you look at some of the things that I think are viewed by the outside world as monetization oriented features.

But it's really our marketplace health features like boosted proposal and.

Things like that that we've also launched over the last couple of quarters.

They are also leading to higher quality connections faster connections between available talent.

Seeking clients in the marketplace. So across the board I think we're feeling great about.

All of these metrics and where they are and will continue to just focus on innovating our product portfolio and the specific features to dial how clients and talent getting connected.

Great. Thanks for that and then.

Just a question on guidance so.

It looks like.

Seven to 8 million EBITDA loss in the third quarter.

And based on your full year guidance it seems to suggest.

Pretty.

Pretty healthy improvement.

A lower loss in the fourth quarter, and I realize the fourth quarter or the larger.

Revenue wise, but is there anything else to call out for instance, as your brand marketing spend peaking in the third quarter or is there anything you can call out there would be would be great. Thanks.

Yes, theres nothing overly notable.

Primarily you know Q4 is often a little bit stronger than Q3 from a revenue perspective, and a bit harder from a marketing perspective in terms of.

Efficiency of dollar spend so there's a little bit of a decline.

On a quarter over quarter basis from marketing from Q3 to Q4. It was really are the primary drivers that impact.

The EBITDA change from Q3 to Q4 excellent.

Great. Thanks, Jeff.

Thank you.

And with that last question I would now like to turn the conference back to Mr. <unk>.

<unk> for closing remarks.

Thanks on behalf of the entire <unk>. Thank you for joining us today and thank you for your interest in network.

Clarifications or have any follow up questions. Please do not hesitate to reach out to me at the Investor upward Dot Com. This concludes our call.

Okay.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

Prince will begin shortly.

Raise your hand during Q&A, you can dial star one one.

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Good day and thank you for standing by welcome to the upward Q2 2022 earnings Conference call.

At this time.

All participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question during that session you will need to press star one one on your phone. Please be advised that today's conference is being recorded and I would now like to handle conference over to your speaker today, Mr. Evan Barbosa VP of Investor Relations. Please go ahead Sir.

Thank you welcome to <unk> discussion of its second quarter 2022 financial results.

During the discussion today are Hayden Brown upwards, President and Chief Executive Officer, and Jeff Mccall upward Chief Financial Officer. Following management's prepared remarks, we will be happy to take your questions, but first I'll review the safe Harbor statement.

During this call we may make statements related to our business that are forward looking statements under federal Securities laws.

These statements are not guarantees of future performance, but rather are subject to a variety of risks uncertainties and other.

Functions, our actual results could differ materially from expected.

The expectations reflected in any forward looking statements.

Additionally, any statements regarding the current and future impacts of Russia's invasion of Ukraine, and our decision to suspend business operations in Russia, and Belarus, and the COVID-19 pandemic on our business and current and future impacts of actions. We have taken in response to Russia's invasion of Ukraine, and the COVID-19 pandemic are forward looking.

Statements.

Related to matters that are beyond our control and changing rapidly.

For a discussion of the material risks and other important factors that could affect our actual results. Please refer to the SEC filings available on the <unk> website and on our Investor Relations website as well as the risks and other important factors discussed in today's shareholder letter.

Additional information will be will also be set forth in our quarterly report on Form 10-Q for the quarter ended June 30.

2022 wind power. In addition reference will be made to non-GAAP financial measures information regarding a reconciliation of non-GAAP to GAAP measures can be found in the shareholder letter that was issued this afternoon on our Investor Relations website at investors got upward dot com as always.

Unless otherwise noted reported figures around it and comparisons of the second quarter of 2022 to the second quarter of 2021, all measures with GAAP unless cited as non-GAAP now I'll turn the call over to Hayden.

Thanks, Kevin and thank you all for joining us today for our second quarter 2022 earnings call.

Building on the momentum of strong results of the first quarter Upper forged ahead on innovating evangelizing and scaling the world of work marketplace growing revenue, 26% year over year to $156 9 million in the second quarter.

We continue to focus on product innovation and saw outstanding results in the form of higher customer satisfaction scores faster time to hire and strong client reengagement rates from our latest innovative feature in the project catalogue area called consultation com.

Consultations with a one click option for clients to book time with talent for both general getting started advice and guidance on important projects decisions. Its early success is leading us to expand the pilot from four categories to all 90 plus categories in the third quarter.

Finally, we also advanced the virtual talent bench or BTB experience to enhance the ways clients can find organize and mobilize the expertise they need.

Our continued success with larger customers and our focus on building brand awareness across the market was evident in our sales and marketing performance in the second quarter.

We're on track to double the land team by the end of this year, we continue to focus on building upward into the household name in our space investing with discipline and a focus on measure ability and brand awareness.

Many large recognizable companies such as <unk> fanatics, Newsweek Pioneer Pearson and service now signed on as New Enterprise plan customers in the second quarter turning to effort as a high trust high quality destination for remote work and specialized talent at scale.

In an increasingly low trust fragmented volatile world.

We help clients like these respond to and prepare for economic headwinds ensuring that organizations growth digital transformation and talent innovation initiatives can progress undeterred.

The success of our new client marketplace plan announced late in the first quarter was also on display with its implementation in the second quarter.

This plan gives all self service clients more features for a flat service fee, while simplifying their experience, reducing friction and providing them more value.

Many clients have already derived additional benefits from the new plan via access to premium talent advanced talent searches utilization of activity codes and more robust reporting capabilities.

Ah.

<unk> inclusive online community is a critical component of what makes upward distinctive we are committed to ensuring our community has the full range of resources to enable talent and clients to innovate their careers and their work to unlock their full potential.

In service of this we launched upward Academy alongside improvements to our community to support the hundreds of thousands of actively earning talent on the platform.

We've seen high levels of engagement on both upward Academy and community pages with over 200 course completion on Academy in the first month and community page viewed almost 50% higher than the previous month.

Upward values are a key attraction point for our customers on both sides of our work marketplace.

This is exemplified by our role as a trusted advisor in helping clients achieve their objectives with new talent from other regions. Following our decision to suspend operations in Russia, and Belarus, where we announced the contract with talent or clients in those countries would be required to wind down by May one.

2022.

With respect to business activity in Ukraine, we continued to see strong performance during the second quarter.

TSB was above 90% of pre invasion levels once again, demonstrating the resilience of professionals from Ukraine as well as the key strengths of our platform.

Overall, we estimate that the loss of revenue directly attributable to the war was approximately $4 million in the second quarter and we expect the impact to revenue in each subsequent quarter of 2022 will be slightly less than the impact seen in the second quarter.

As we look to the future.

Up work alongside our customers partners and investors face as macroeconomic conditions that are difficult to predict.

There are risks, but a slowing economy puts downward pressure on some parts of our business. We also see this as a catalytic moment for leaders to reevaluate the old ways of working and operating as well as to widen their consideration of more innovative solutions and for off work to capture a greater share of the market are.

Business model remains durable and we are confident that our value proposition of delivering highly skilled diverse talent from over 180 countries more effectively affordably and quickly than alternatives as well as them, enabling clients to have greater flexibility with our cost structure will continue to resonate even in a recession.

Larry environment.

The opportunity ahead of upward is massive regardless of near term economic condition in fac business continuity talent transformation, a flexible cost base and cost savings will likely become even more critical in the quarters ahead.

We remain focused on delivering enduring growth fueled by investments and initiatives with strong economics in every aspect of our business from core product innovation to building, our sales muscle to brand and performance marketing.

<unk> is the leading digital platform the clients trust to deliver the talent they need with the exact skills to get work done and as the home that talent trust to champion them and innovating their careers, while bringing them exceptional work opportunities.

There is vast potential unlock on both sides of the world work marketplace and we've only just begun.

Thank you for joining us on this journey, we will now open the call to your questions.

Thank you.

A reminder to ask a question you will need to press star one one on your phone.

Please standby as we compile the Q&A roster.

Our first question comes from Matthew Farrell Piper.

Piper Sandler your line is open.

Thanks, guys. Congratulations on the really strong execution in managing through all the moving pieces.

I wanted to zero in on.

On the $10 million to $15 million impact from the softening of the global environment should we think about that including some further deterioration in the macro from here and then as I think about that from an upward perspective, how does the utilizing the freelance workforce benefit you from a cost perspective.

As you look to balance.

Costs here as we move forward and are unpredictable.

Unpredictable environment.

Thanks, Matt I'll take the first part of that.

So with respect to the $10 million to $15 million impact.

Our guidance reflects.

Some of the softening that we saw.

In Q2 with respect to client acquisition client retention, particularly as we noted in Europe and in SMB.

And obviously this is yes things are difficult to predict in terms of how they will play out but it's our best guess based upon.

The trends that we're seeing at this point, what that impact could be clearly things could be better things could be worse, but that's how we really box to what we thought the impact could be.

With respect to the second question, which was.

Cost savings on the platform hidden did you want to address that.

Sure I'd say, Matt we're seeing in the broader market customers are really kind of resonating with us or talking to them the value proposition, we have around saving more through programs using talent on FERC and on average they save 50% or more using upper talent versus alternatives. Other things that are really resonating.

Our around flexibility and speed.

So while macro is obviously front and center for so many businesses right now.

We're not losing sight of the fact that they still need to get work done and they are really trying to figure out how they can do that cost effectively and that's where our value proposition is resonating. Hence we are we have realigned a lot of our marketing and sales talk track to really shine a light on that part of our value proposition and we're getting good receptivity around that so we want to make sure that we are positioned.

Our business to take full advantage of that opportunity, which I think is going to be significant over the coming quarters.

Thanks, and then.

So I wanted to zero in on.

Really strong momentum again here in Q2 across all the metrics.

Maybe just help us understand how conversations have changed with some potential clients.

As we've gone from.

A COVID-19 world to an economic slowdown environment and.

Could we expect.

The accelerated trends.

Marketplace, just given the benefit that the marketplace offers here for enterprise customers over the next couple of quarters.

What we've seen so far Matt is strong execution by the team continues I think against the backdrop of conversations, which certainly theres been an uptick a focus in Q1 and Q2 from customers around things like.

Cost savings maybe they themselves are doing layoffs are shrinking their budgets, but theyre looking to us as an alternative for getting talent really cost effectively and I think thats led to some of the success, we saw a 24% year over year growth in new deal. We saw our overall enterprise revenue grow 45% year over year in Q2, so there's a little bit of.

That is probably in the conversation, but I wouldn't say, it's materially changed anything for US I think the success is largely been driven by great execution by the teams and continued hiring in everything that we had in the plan coming into fruition. So I think there's something in the backdrop, but it is not.

A major change right now companies are still really focused on the three things that we typically help them with the most critical skill gaps greater agility digital transformation efforts and now just the fact that we offer some of these evergreen things by cost savings.

It's just a little bit more top of mind.

Awesome Congrats again.

Thanks.

Thank you.

Our next question.

And our next question comes from Maria Rips Canaccord Genuity. Your line is open.

Great. Thanks, so much for taking my questions and congrats on strong results. So it sounds like this last couple of quarters, you had a little bit higher contribution to growth from spent per client versus number of clients can you maybe just talk about whether this is.

Has been consistent with your sort of internal expectations and how should we think about this dynamic going forward, especially given sort of continued focus on sales force.

Pension and Brendan investments.

Okay.

Sure. Thanks Margaret.

So there's a number of factors are one we're really pleased with the quality of the clients that are on the platform and the growth that we're seeing from them.

Right. There are overall spend across the 800000 approximate clients. We have on the platform is up 16% year over year, those are spending over 100000 or up 38% and.

$1 million spenders are growing significantly as well. So we're really pleased to see that we've mentioned historically that that's.

And that's been driven significantly by expansion in hours per project on the platform, which we think is a great signal that clients are getting more and more value from the platform.

As we mentioned we have seen some.

Softening in the client acquisition.

Levels once.

Once again, primarily related to F&B and in Europe .

So that's putting a little bit of pressure in terms of the overall growth of active clients.

But it's great to see that the clients that are on the platform are continuing to grow their spend and it highlights. Additionally.

Okay.

Got it thanks, Jeff and maybe sort of related to this.

Does the current macro backdrop change your priorities or approach to sales force expansion and brand investments.

That's been contracted for some businesses and then things improved as we leaned into the specific opportunity that we saw for a break around working from the other secular trends that were happening and economic aspects.

We also see a couple of dynamics playing out as we look ahead. So one is spend will likely contract in the next couple of quarters and as Jeff mentioned, we've ring, that's going to come from specific customers, probably F&B, Europe et cetera, but we've ring fenced that as a $10 million to $15 million downside, which is baked into our annual guidance.

Out of this catalyzing the business to be even stronger than ever before.

It is going to be critical going forward as more customers become aware of and adopt distribution through the coming quarters.

Got it that's very helpful. Thank you very much for the color.

Absolutely.

Thank you.

And again, one moment for the next question.

Our next question is coming from Andrew Boone of JMP Securities. Your line is open.

Good afternoon, and thanks, so much for the questions.

Given the 90 basis point step up and take branch quarter over quarter can you help us understand the momentum in take rates and whether that can continue from here and then just given the greater success in terms of monetization how do you feel about taking price as a growth lever from here.

Thanks, Andrew.

Okay.

Yes, it's great to Cvs.

And the nice increase in take rates, which is primarily driven by the by the pricing and packaging structure change that we made in Q2.

When we look at the longer term horizon of where take rates would go we do expect that they are.

We will likely be able to deliver additional value.

And to drive increases in take rates for a variety of factors.

One <unk>.

As enterprise, which has a higher take rate than non enterprise.

<unk> to grow faster than the rest of the business that will have an upward momentum.

Project catalog and take rate also higher take rates and so as they grow faster same store dynamic now they're smaller.

Some of the business, so there'll be a little bit longer. There's also additional opportunities to drive take rate through our paid promotional products and potentially value added services.

So we do think that over the medium to longer term arc. They will continue to rise as we flagged at the beginning of the year we expected.

Nice improvements throughout 2022, we do have the additional dynamic that was really the driver of our take rates decreasing in 2021.

As clients.

Continue to find more and more value on the platform.

More of their spend is at the lower end of the pricing tiers and so that dynamic will continue.

As we continue to see that that spend per active client continue to grow.

Okay.

Yes, Thanks, Andrew.

So we actually think there's good leverage that we can have across the board.

So whether that is from cost of revenue.

Including payments, where the majority of our cost of revenue actually comes from our payments costs.

Or or customer support.

But we also think that over that medium to long term market there there'll be benefits along all of the Opex lines. So.

So G&A.

G&A R&D.

And ultimately sales and marketing, although we're obviously investing aggressively in those areas right now as we look out over the next several years. We continue to believe that there is good opportunities to drive that we've mentioned that will.

We're providing the target for 2023 of achieving EBITDA profitability and that will continue to expand that EBITDA margin by several hundred or by a few hundred basis points.

Each year thereafter.

Great. Thank you.

Thank you.

And one moment please for the next question.

Our next question comes from Mr. Bernie Mcternan of Needham <unk> Company. Your line is open.

Great. Thank you for taking my questions just to follow up on the on the macro.

Expected year over year growth rate in active clients to decline in the $10 million to $15 million impact.

In the release it it seems like that's really isolated weakness in Europe . It does that contemplate any weakness in the U S as well.

Yes.

Thank the phrasing was.

Some softening trends, particularly in.

In Europe and in F&B.

In general as we look at it.

But we have made some assumptions on that.

Is this also a catalyst for higher quality talent to join the platform as well.

I think it.

It definitely is not going to be a negative for us we have such a strong talent base as it is and we've seen continued growth in that through the last years.

Years, and quarters, and certainly theres been a mindset shift I think we're.

In prior recessions going back in 2008, perhaps people might have seen freelancing as a risky place to be during an economic downturn in fact today, what we've seen in the last year that we've been serving on our platform. The answer is actually are feeling more insulated from economic downturn being freelancers, because they feel like they're not exposed to a single employer.

Laid them off and so to your point I think today's professionals are looking at freelancing as a highly desirable place to be they want to have more options in terms of multiple exit their basket, where they're not.

Exposed to that so we are certainly positioning ourselves to welcome to Tom on the platform in the coming quarters as we always do.

And place them into great opportunities.

Understood and then just lastly for me if we could just dive into upward Academy.

Just some of the most popular types of education of the talent seeking out and ultimately this away for to really match the right clients with the right talent as.

Thomas you can screen and be able to show clients said, Hey, this person pass a certain class so they should be.

Equipped to do this job yes.

Yes, Bernie this is.

Just the beginning I think of what we can do here. So it would be early courses that were offering and where people are getting a lot of value is a lot about kind of freelancing online 101, and how do I get started building our profiling our reputation on up or how do I win my first job. So that's a lot of the kind of initial coursework that we've launched and where talent is engaging the most.

There is also some course work on the client side around how to operate in the way of working that we offer.

But this is again the beginning of I think a lot of what we can unpack for talent and clients around.

Days of working online around both hard and soft skills required to be successful on our platform around remote ways of working and our community has tons of ideas and frankly as always doing their own work kind of informally sharing best practices that relate to all of the things that they are doing everyday to be successful working in our ecosystem. So we will be <unk>.

For everybody who's participating.

Great understood. Thank you so much for taking the questions.

Thank you.

Yes.

One moment. Please go to the next question.

Our next question will come from Eric Sheridan of Goldman Sachs. Your line is open.

Maybe just one question from me is you've seen the broader macro environment become a little bit more volatile or I know, it's early days and sort of the big market opportunity over the next couple of years, but are you seeing anything different in terms of competitive intensity across the industry or elements of dynamic in terms of engaging with existing clients or perspective.

On the competition side. Thanks, so much.

Sure Eric we haven't seen anything materially different in terms of competition I think in conditions like these quite often it is harder for the smaller kind.

Ankle biters in our space to stay competitive just because it gets to be harder landscape for them, but where we're focused is just continuing to offer our outstanding value proposition to clients and talent and forge ahead with our our innovations, which I think are really meeting the needs of the market and saying have there so nothing really material to report at this.

Jim.

Okay.

Thank you.

One moment for our next question.

Our next question comes from Nathaniel Schindler of Bank of America. Your line is open.

Yes, Hi, guys just wanted to focus in on.

How the brand campaign is going and how you are evaluating at this point now some.

Call it eight months into it and whether or not it's been successful in expanding the business.

Thanks, Matt the focus of this has always been durable growth with strong economics, which is our top priority in every investment area, we make including brand and I would say to bolster the discipline and the measure ability that we haven't even enhance the ROI in the brand area. We did launch two partnerships in Q2.

<unk> with its those in Universal Mccann, which we're excited about is kind of key milestones here secondly, we always knew and to your point about the eight months, we committed and communicated that this would be a multi quarter journey and so additional milestones that we were excited about in this quarter as we've been on this journey, where the mother's day campaign.

Which really provided us important learnings about how the upper brand can resonate with customers in key cultural moments.

And across critical channels like social and so we've been wrapping those learnings into our brand and marketing programs going forward.

Third thing I'd say about this as we're really finding already that the value proposition that we have does really resonate given the broader secular trends around remote work and digital transformation as well as upward specific benefits around cost savings and workforce flexibility, which are still top of mind for executives in these very moment.

So this is all informing our brand and marketing programs right now as we're going into the back half of the year. At this critical time. We are really are aware that we can drive share shift and kind of pull out of this period, even stronger so as we look to the future because of our disciplined approach we feel good about our ability to continue to achieve both our brand goals.

And achieve EBITDA profitability in 2023, and further expand our margin thereafter.

Great. Thanks, and then just a separate question to totally hammer in on all of this macro talk but I figure Thats, what everybody is going to talk about with everybody for the next couple of quarters.

Can you just speculate or anything you have on the history of how does the.

Contracting business your style of contracting business get affected and recessions, how do enterprises respond.

Usually in this side of the business and is there any sort of learnings on kind of timing of where they.

Contract and expand coming into cycles.

It'd be great if you could help.

Sure I think there's a couple of things to say about that.

We've looked at a few analogs for our specific business, which.

I think is unique and different from even traditional staffing others. So we've looked at our business. We've looked at what happened in 2008, and we grew really healthily through that period of course that was 14 years ago and the business has changed a lot since I know, there's certainly a lot bigger and has more aspect to it we looked at 2020 and what happened with the pandemic economy.

At that time and what we saw there was an initial slowdown in kind of the March April period as businesses were overall just contracting their own spend in many businesses were struggling are going under and then of course, we grew really nicely out of that.

And I think one of the takeaways that I have from looking at those two analogs is for us.

The economy and how does the economy is certainly a factor that impacts our results and that's why we have put in the $10 million to $15 million.

And impactful for almost every business and certainly huge.

For our business and core to our value proposition at this time, so I think those things together.

We're focused on the macro for sure, but we're also as much or more focused on these critical things that are secular trends driving our business and film businesses and are in the crosshairs of the value proposition that we're selling into right now.

Great. Thanks.

Sure.

Thank you.

One moment for the next question.

Yeah.

And next we have Rohit <unk>.

Okay.

<unk> partners your.

Your line is open.

Hey, thanks.

Nice quarter guys.

One question on the pricing plans are wondering if.

You have any feedback in terms of the pricing plan affect any client additions gross additions and just broadly speaking however.

Gross editions candid.

As you kind of locked through all the all the tougher comp units.

Active clients as such.

Thanks, Eric.

Yeah, as we as we looked at the impact of the pricing change.

We paid attention to a number of different things one.

What was the level of adoption with features that were previously behind the subscription paywall. How is that how are those go in and we've been really pleased to.

To see that increase materially and that was one of the fundamental premises of the of the change was to make sure those valuable tools were available to many broader folks second of all was to monitor.

How is the overall package impacting retention.

And clearly the prices going up in <unk>.

In some key areas and we havent seen anything noticeable we did hold outs as compared to <unk>.

From a pension perspective, so we're very pleased to see that.

And then from a financial impact on it.

We achieved our highest gross margin as a public company and our marketplace take rate was the highest.

Okay.

The company.

Our marketplace take rate was the highest.

Marketplace acreage since being a public company as well so we're really pleased with how our.

Value that we're delivering to customers and the reception of the changes.

Okay. Thanks, Thanks, Jeff.

Yes.

Question on project catalog, it's been a while since you disclosed metrics contribution from catalog.

In terms of the.

Client additions so GSV.

Wondering if you have any more details to share.

Or anything that we can look at from the outside in terms of how successful.

You'll be in.

The rollout of <unk> catalog.

Is that can jump in on now and Rohit I think the catalog.

Such as consultation, which we launched in the last quarter and now are going to be rolling out from four categories to all of our categories presently because we're really seeing that catalog and consultations are excellent inroads for customers to get started either with something small in <unk>.

Or becoming with for example, consultations are great way to get into a conversation with the talent that more often than not leads to follow on work in here with consultations. For example, we're seeing clients are averaging a much faster time to higher than we had in the talent marketplace with 50% lower with this one five days to get started.

And there also.

Turning to do follow on work, which often is in the talent marketplace.

Adam at a much higher rate, 50% higher than we've seen with talent marketplace off historically and so this is a nice kind of like in between offering that is really graduating clients really nicely from some version of catalog kind of into the broader marketplace and so this is really validating yet again, our whole thesis around catalog talent marketplace.

Consultations as being part of this broader work marketplace ecosystem that is just adept at getting customers in the door and getting started with Tom any variety of our products.

Okay, great. Thanks, Thanks, Jeff Thanks.

Thank you.

One moment for the next question.

Our next question comes from Logan rank of RBC capital markets. Your line is open.

Hey, Thanks for taking the question leg it out of her Brad Erickson.

Question on enterprise. So you guys had a strong client growth this quarter.

Sure. Thanks, a lot good I'll start with that.

Yeah.

So part of it is.

It's simply the fact that we are executing against our plan.

Where we identified the opportunity to invest more aggressively in building out our sales motion here.

We started adding reps in Q4 of 2021, those reps are starting to ramp.

And really have an impact really starting in Q2 of this quarter. So.

We delivered the 36 new accounts.

That was up I think 24% year over year.

So we're really pleased to see that and then as Hakan mentioned earlier, obviously, our value proposition resonates very strongly.

Accounts of all sizes.

We havent start haven't yet started to see those accounts shift.

Exactly what they are interested into cost saving.

As a result of any recessionary dynamics.

But we are actively engaged with them on those topics.

So we're really pleased by what we're seeing both on the land side as well as the expand side.

And continue to be pleased with the opportunity ahead of us.

Great. Thanks, and then just any sort of divergence you guys might have noticed in the behavior from companies that might be cutting costs or laying all full time employees.

Are you noticing any difference in behavior from those clients relative to your overall client base.

We're really not seeing this yet I would say.

Yeah.

The average customer is looking just like it was over the past couple of quarters and the success stories are very similar we have customers like Emirates NBD. That's one of the largest banks in the middle East and North Africa, and they came to us looking for new flexible talent, they can drive innovation and our marketing team.

This is typical for us we're not really seeing an influx of customers who are.

Coming to us just because they're doing a big layoff or even our existing customers, who maybe are trimming head count coming back and saying, Okay. Now we need to overhaul the program. So as Jeff mentioned as we look ahead.

Maybe as the economy worsens or other things there may be more of those types of things, but certainly as we look to Q2 it was really more of.

Kind of I hate to call it seem old same old, but these value propositions that we've always had really driving customer activity in really great ways.

Great. Thanks for the color I appreciate it sure.

Thank you.

One moment for the next question.

Our next question comes from Brent Thill of Jefferies. Your line is open.

Alright. Thank you this is Jonathan.

I wanted to add a couple of macro questions.

Possible. So you talked about declining because in Europe , and Smbs and want to see if you could maybe add a little more color in terms of.

Behavior, there I don't know whether there is any.

Tendency for smaller projects.

Or use a mortality of catalog as opposed to more hours.

What about by geography by industry as a customer size and then and then some.

It'd be a little bit different than the previous questions about enterprise, but any signs of anything on the enterprise segment in terms of.

Activity on your platform.

Sure. Thanks, John I'll start.

In terms of activity that we're seeing in.

From a geographic perspective.

And if there's any notable.

Trends or more details that that we can provide we just saw.

A little bit greater softening in the Europe market overall.

But nothing nothing in particular to call out about specific customer segment.

Behaviors.

And then with respect to enterprises your question.

What sort of impacts we're seeing in the enterprise or can you clarify the question.

Yes, I mean in terms of.

Overall level of activity or.

Chronic acquisition and so on I mean.

So is there any softness at all among the larger customers.

Yes, we are.

And enterprise is.

Starting at the very top we're having good success hiring our land reps against our plan there.

They are continuing to execute well against their productivity targets.

We're beating that achieving that the new reps that we're hiring are onboarding well. It's early we're just basically I guess Dale seven to eight months out of the first kind of reps that we started hiring in Q4 of last year.

Conversations with those accounts are going very well nothing no material.

The impact is noticeable from a sales cycle perspective.

And engagement with our <unk>.

Our existing accounts. They are also continues to go well and you can see that in the overall revenue per account or revenue growth from the enterprise segment, So nothing to call out there.

Great. Thank you.

Sure. Thanks, Sean.

Thank you.

Okay.

One moment.

Okay.

Our last question will come from Marvin Fong of <unk>. Your line is open.

Good evening, Thanks for taking my questions and congratulations on the quarter.

Maybe to start with.

And so many questions about the current environment.

Bigger picture question, perhaps I was just curious on maybe we just think about some of your other key performance indicators like like time to hire or fill rates.

In light of all the.

Improvements you've been making to the platform over the past years and the new.

Client membership.

Structure.

How does.

Either time to higher fill rates changed meaningfully since look let's say before the pandemic.

Now at how are those trending and then I have a follow up.

Sure I'd say, we feel good about the state of time to higher fill rate.

Certainly.

It was pretty remarkable I think to us that as we went through Q1 for example, and we saw a pretty significant shocks to the system in <unk> Web mobile software development category.

As the Ukraine, or and our decision to suspend operations with.

Inside of Russia, and Belarus played out that as you reported in the Q1 call. There was really no impact to fill rate in that category for example, and so I think we've navigated both.

Some external shocks potential essentially very well with regards to that metric like that which is a critical and our platform and with innovations like the launch of consultations we're seeing.

The potential for acceleration in places like time to hire with a product like that and with catalog, which connect talent and clients get on our platform EBIT faster. So I think all of these metrics are really healthy and even as you look at some of the things that I think are viewed by the outside world as monetization oriented features.

But it's really our marketplace how features like boosted proposal.

And.

Things like that that we've also launched over the last couple of quarters.

These are also leading to higher quality connections faster connections between available talent.

Seeking clients in the marketplace. So across the board I think we're feeling great about <unk>.

All of these metrics and where they are and we will continue to just focus on innovating our product portfolio and the specific features to dial how clients and talent getting connected.

Great. Thanks for that and then.

Just a question on guidance so.

It looks like.

Seven to 8 million EBITDA loss.

The third quarter and based on your full year guidance it seems to suggest.

Pretty.

Pretty healthy improvement.

A lower loss in the fourth quarter, and I realize the fourth quarter or the larger.

Revenue wise, but is there anything else to call out for instance, as you Brian marketing spend peaking in the third quarter.

Anything you can call out there would be would be great. Thanks.

Yes, theres nothing overly notable.

Similarly, Q4 is often a little bit stronger than Q3 from a revenue perspective, and a bit harder from a marketing perspective.

In terms of efficiency of dollar spend so there's a little bit of a decline.

On a quarter over quarter basis from marketing from Q3 to Q4, those really are the primary drivers that impact.

The EBITDA change from Q3 to Q4, thanks Mark.

Great. Thanks, Jeff.

Thank you.

And with that last question I would now like to turn the conference back to Mr. <unk>.

<unk> for closing remarks.

Thanks on behalf of the entire upper teens. Thank you for joining us today and thank you for your interest in network. If you need any clarification or have any follow up questions. Please don't hesitate to reach out to me at Investor upward Dot Com. This concludes our call.

Okay.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

Q2 2022 Upwork Inc Earnings Call

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